As President Barack Obama and a bipartisan group of lawmakers prepare for a summit today at the White House to discuss reducing government spending and raising the debt ceiling, the question remains:
What happens if Congress doesn't raise the $14.3 trillion debt limit before Aug. 2?
No one knows for sure. Congress has always agreed to raise the debt ceiling. And that will most likely happen this time, eventually. But as late as Friday, Republican House Speaker John Boehner was still saying there's no "imminent deal."
So, assuming we reach Aug. 2 with no agreement, the Treasury Department would not have authority to borrow any more money. That's a problem because the government borrows to make up the difference between what it spends and what it takes in.
The Bipartisan Policy Center, a think tank established in 2007 by former Senate Majority Leaders Howard Baker, Tom Daschle, Bob Dole and George Mitchell, has released an analysis that shows federal spending would have to be reduced by as much as 44 percent for the remainder of August as the Treasury prioritizes payments to remain under the debt limit. Here's one scenario the center created to show what that might look like:
In August, the government will collect $172.4 billion.
If Treasury decides to pay ...
• Interest on Treasury securities $29 billion
• Social Security benefits $49.2 billion
• Medicare/Medicaid $50 billion
• Defense vendor payments $31.7 billion
• Unemployment benefits $12.8 billion
Total cost: $172.7 billion
... then it couldn't pay for these programs, worth $134 billion:
• Military active duty pay $2.9 billion
• Veterans Affairs programs $2.9 billion
• Federal salaries and benefits $14.2 billion
• Education Department (Pell grants, special education programs) $20.2 billion
• Food/nutrition services (food stamps, Women, Infants and Children Program) $9.3 billion
• Department of Justice (FBI, federal courts) $1.4 billion
• IRS refunds $3.9 billion
• Small Business Administration $0.3 billion
• Housing and Urban Development (housing assistance for the poor) $6.7 billion
• Other spending* $72.2 billion
* Labor, Environmental Protection Agency, Health and Human Services, NASA, Commerce, General Services Administration, Energy, Interior, Federal Transit Administration, Federal Highway Administration, Agency for International Development, etc.
What would happen if the government stopped paying its bills?
Here's an answer from the Pew Charitable Trusts: Short of a default, the uncertainty surrounding potential missed payments by the government might lead investors to sell federal securities or demand higher interest rates. That could result in financial upheaval as federal borrowing costs spike and demand for U.S. assets falls. In addition, because Treasury securities play a fundamental role as a safe asset in global financial markets, a default (or the anticipation of a default) by the federal government and accompanying rise in interest rates could potentially have wide-ranging impacts on global markets, although the specific effects are unclear. Ultimately, the consequences of a default will depend on how investors respond to uncertainty surrounding the debt limit.
Compiled by Times staff writer Ron Brackett